Europe EU wants to prevent economic war with USA under Trump

Following the US election, the EU is preparing for difficult cooperation with future President Donald Trump.

"The top priority must be to avoid an economic war", said Austrian Chancellor Karl Nehammer on the sidelines of a summit meeting with his counterparts in Budapest. There must be clear negotiations, rules of the game and mutual incentives are needed to allow investment.

The meeting of the heads of state will therefore focus on how the competitiveness of European companies can be strengthened, especially in the face of competition from China and the USA. From the EU's perspective, both countries give their companies advantages with high subsidies, meaning that Europe is at a disadvantage. The prospect of Trump as the new US president increases the urgency of the debate.

The meeting will discuss strengthening the single market and how to work more productively and innovatively. Europe's defense readiness and the green transformation of the economy will also be discussed.

"Relations between Europe and the USA will change significantly"

The debate was based on an analysis by the former head of the European Central Bank, Mario Draghi. This shows weaknesses as well as options for action for the international community - and above all a great need for investment. Draghi said in Budapest that there was no doubt that the Trump presidency would greatly change relations between the USA and Europe. Europe had spent too long trying to find a consensus and could no longer put off decisions.

During the election campaign, Trump announced his intention to introduce new tariffs of 10 to 20 percent on imports. For Chinese goods, they are even set to reach 60 percent. In doing so, he wants to strengthen the USA as a production location and reduce the current trade deficit. Several economists recently warned that Trump's return to the White House would probably have a negative impact on growth in Europe.

This could be particularly hard for the German automotive industry and its suppliers. Together with China, the USA is the most important sales market outside the EU for manufacturers such as Volkswagen, BMW and Mercedes-Benz. Special tariffs would probably have a considerable negative impact.

Luxembourg's head of government Luc Frieden explained in Budapest that we would first have to wait and see what Trump does. But discussions with America would be held on an equal footing. "We are in favor of fair and free trade. Tariffs are not the best way to achieve this, but if someone introduces something, then you have to react." According to Federal Chancellor Olaf Scholz (SPD), the talks on competitiveness are of "the utmost importance". We must be "at the forefront of innovation" and mobilize capital and drastically reduce bureaucracy. Italy's head of government, Giorgia Meloni, said that it was not about what the USA could do, but what Europe could do for itself.

Financing controversial

In order to become more competitive and be able to compete with China and the USA, money is needed above all. Where exactly this should come from is controversial. Both public and private funds must be mobilized for the necessary investments, according to a draft for the final declaration of the meeting, which is available to the German Press Agency. "We are determined to examine and use all instruments and tools," the heads of state and government wrote. This means that the option of new joint borrowing remains on the table. Germany has so far clearly positioned itself against it, while other countries are in favor of it. So far, the EU has only borrowed on a large scale for the multi-billion euro coronavirus recovery fund.

The leading politicians agree that the European Investment Bank and the long-term budget of the community of states should play a key role. They also want to work towards the introduction of new own resources - this could be a new tax on cryptocurrencies, for example.

In order to mobilize more private money, the heads of state and government are therefore also insisting on "urgent progress on the Capital Markets Union". The planned convergence of the European capital markets is essentially about reducing bureaucratic hurdles between EU states in order to give companies more opportunities to raise money. "In addition, greater capital investment would help to secure the EU's competitiveness in critical technologies," write the leaders.

SDA